Things to Consider When Selling Your Business
Many businesses are listed on the spur of the moment and details available are scant and poorly prepared. Selling a business is very different to selling a house, with specific marketing details required.
To Achieve a Better Price
Factors That Affect Goodwill
Selling Your Business
Real Reasons That Realistically Priced Businesses Sell First
What Details Are Required When Selling
Ten Questions To Ask Your Next Business Broker
To Achieve a Better Price:
- The business should be groomed for sale and this may take time
- A comprehensive information dossier will give a better initial impression
- Disposal of surplus and unnecessary stock
- Disposal of surplus and obsolete plant – This lowers the purchase price, making the business more affordable
- Eliminate completely operating costs that do not relate directly to the business – This gaines a better price as the business shows better profit. Many people find it hard to understand profit and loss and by eliminating what is unnecessary, a clearer picture can be obtained
- Endeavour to improve the gross profit margin, by better terms with suppliers and higher selling prices to customers
Business Profile:
Produce a business profile on the business – give the genuine interested purchaser an insight into the management and reasons for management decisions.
Factors That Affect Goodwill
Intangible Assets:
Along with other factors, goodwill is based on historical profit figures and future maintained profit. Poor results will give a poorer goodwill figure, if the company is doing well, show it.
Business Profile:
- Produce a business profile on the business – give the genuine interested purchaser an insight into the management and reasons for management decisions
- Profitability
- Length and terms of lease
- Desirability of type of business
- Location
- Special factors – economy, price range, skills required, uniqueness and competition
Selling Your Business
Businesses for selling purposes are normally divided into three parts, namely:
STOCK, PLANT - Tangible asset
GOODWILL - Intangible asset
The premium value a buyer will pay the seller for organization and historically recorded cash flows where a business has a value as a whole or going concern in excess of its tangible assets.
Methods of Determining Goodwill:
- Market Comparison
- Basic Method -Portion of year’s profit plus asset value
- Gross Revenue Multipliers
- Capitisation Of Earnings
Problems of Overpricing:
- Agents will show your business to validate a better price for a comparable business other than yours
- The business has a historical longer “time on the market” and therefore lower “net” to the seller due to accrued holding costs
- On sales involving a high loan to value ratio the financing could be in serious jeopardy due to the appraisal
- It increases the business’ chances for lower exposure because most agents in preparing showing itineraries want to present only the very best options to their customers
- The business can be lost in the overpriced or higher priced listings. Buyers qualify for price ranges and if you are above the upper limit on the computer run, you do not even get considered
- Those buyers who do look, are shopping by comparison – looking at your business may convince them to make an offer on a different one
- Due to the increased length of time the business is on the market, it runs the risk of becoming “shop worn”. Hence, any offers that do come in are well below what they could have been if proper pricing was initiated from the start
Real Reasons That Realistically Priced Businesses Sell First
- Buyers are aware of lengthy market exposure and usually attribute this to overpricing
- Merchandising your business is done for results – overpricing reduces the response and, ultimately, the results
- Buyers educate themselves with market comparables. If your business does not compare, it will not sell
- Buyers will avoid overpriced businesses and look elsewhere
- The proper pricing of any commodity, especially a business, results in an early sale
- A properly priced business indicates to both broker and buyer that the seller is truly motivated to make a move
- Businesses usually sell at - FAIR MARKET VALUE! Pricing a business realistically will bring a timely sale, fewer inconveniences and a greater monetary return
Paul Thomas has 22 years Business Broking experience in the Nelson Province and can assist with positive advice on pricing and marketing your business.
What Details Are Required When Selling
- Presentation of property prepared Profit and Loss Accounts for the last 3 to 5 years. GST Returns for the financial year current
- Copy of lease (if applicable) plus any assignment and conditions pertaining to that lease
- Legal description of property and rate papers (if applicable)
- Estimation of stock value
- Schedule of plant, fixtures and fittings and leasehold improvements (if applicable) depreciation schedule
- Any written contracts relating to the business
- Staff written contracts relating to the business
- Staff wages/hours and rates of pay, job descriptions, employment contracts
- Profile of business, giving details of business, history, background, management, markets
- Correspondence or certificates relating to Health Department or Local Body (if relevant)
Remember – more sales are lost through lack of information than poor financial results. Be up front and honest about the business. Many people are put off purchasing by lack of confidence in information provided.
Ten Questions To Ask Your Next Business Broker
- How many years have you been selling businesses?
- Do you sell houses as well as businesses?
- How many businesses have sold in the Nelson province recently?
- What do you know about Nelson foot traffic?
- What is your standard commission?
- Does my business need any grooming or changing in any way?
- In what price range would you market my business?
- Can you give me a written assessment of my business?
- What professional designation do you have?
- Could you give me a copy of your resume?
